A chapter 13 debtor sought a court determination that a mortgage loan was unsecured because there was a small typo in her name when the mortgage was indexed. The mortgagee brought a motion to dismiss for failure to state a claim.
Applicable state law included the following provisions:
- “’No deed of trust… shall be valid to pass any property as against lien creditors… but from the time of registration thereof.’”
- “Registration of the instrument is only deemed valid if the instrument is ‘indexed in a manner to put a reasonably careful and prudent examiner on notice upon inquiry, and, if upon inquiry, the instrument would have been found.’”
- “Furthermore, ‘substantial compliance with the indexing statutes’ is required in order for a recordation to be effective as notice.”In the context of a motion to dismiss for failure to state a claim, the court noted that well-pleaded allegations made by the plaintiff are taken as true and all inferences are liberally construed in the plaintiff’s favor, but the plaintiff is required to allege sufficient facts to state a claim for relief that is “plausible on its face.” In a very short and to the point opinion the court found that the debtor failed to plead a facially plausible claim.
- The bankruptcy court briefly discussed a state court decision determining that a judgment docketed under the name “Philips” instead of “Phillips” (with one “l” instead of two) was sufficient notice to create a valid lien. The state court found that there was substantial compliance notwithstanding the minor discrepancy in the name. Noting the parallel facts in this case, the bankruptcy court held that omitting one letter from the middle of the debtor’s name alone did not lead to a reasonable inference that indexing under the incorrect name was a failure to substantially comply with the notice requirement.
- The debtor’s name was “Deirdra Gause.” However, the deed of trust was indexed under “Deirda Gause” (without the second “r”). The issue was whether omitting a single letter in the debtor’s first name constituted a failure to substantially comply with the recording requirements.
While this seems like a reasonable decision, there are a surprising number of cases in which a court has determined that a mortgage fails due to some seemingly minor error.